Bond Prices Edge Higher on Weak U.S. Durable Goods Data

U.S. Treasuries prices edged up on Tuesday after data showing an unexpected fall in orders for U.S. durable goods in December spurred safe-haven bids, but nervousness ahead of the Federal Reserve's policy decision capped gains.

The Commerce Department reported that orders for long-lasting U.S. manufactured goods fell by 4.3 percent in December.

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"It does paint a much bleaker picture for the U.S.," said Aaron Kohli, interest rate strategist at BNP Paribas in New York.

The U.S. Treasury Department sold $32 billion of two-year debt, which will followed by the debut of $15 billion in two-year floating rate notes on Wednesday, and $35 billion in five-year notes and $29 billion in seven-year debt on Thursday.

The new supply helped limit gains in Treasuries prices, along with uncertainty surrounding the outcome of the Fed's two-day policy meeting. The Fed will release its policy decision at the close of the meeting on Wednesday afternoon.

The U.S. central bank is considering whether to further scale back its bond-purchase program, which is aimed at holding down long-term borrowing costs to help the economy.

"Traders just want to see what the Fed's going to do," said George Goncalves, head of U.S. rates strategy at Nomura Securities International in New York.

In December, the Fed reduced its monthly purchases of Treasuries and mortgage-backed securities by $10 billion to $75 billion. Some analysts expect the Fed will cut purchases by another $10 billion this week.

Emerging market assets stabilized on Tuesday after three straight sessions of intense selling, but signs of trouble in developing economies remained fresh in traders' minds and contributed to the modest flight to quality in Treasuries.

Investors waited to see if Turkey would hike interest rates to defend its battered lira currency.

"It's not over," Kohli of BNP Paribas said of the rout in emerging market assets. "There's this creeping sense that people have that there could be more weakness around the corner."

Benchmark 10-year Treasury notes were last up 4/32 in price to yield 2.752 percent, down slightly from 2.766 percent late on Monday.

Positive U.S. economic data on home prices and consumer confidence had little impact on Treasuries prices.

U.S. single-family home prices in November rose slightly more than expected from October, while prices posted their biggest year-over-over increase in almost eight years, a survey showed on Tuesday.

The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.9 percent from October on a seasonally adjusted basis. The 20-city composite index rose 13.7 percent year-on-year, the largest rise since February 2006.

In a separate survey, U.S. consumer confidence rose in January as consumers grew more optimistic about both business conditions and the job market.

The Conference Board, an industry group, said Tuesday its index of consumer attitudes rose to 80.7 from a downwardly revised 77.5 in December. Economists polled by Reuters had expected a reading of 78.1.

The Fed bought $2.99 billion in U.S. government debt that matures May 2021 to August 2023 for its bond-purchase program, which had little impact on bond prices.